Summary of working capital management
- The objectives of working capital management are often stated to be profitability and liquidity.
- These objectives are often in conflict, since liquid assets earn the lowest return and so liquidity is achieved at the expense of profitability.
- However, liquidity is needed in the sense that a company must meets its liabilities as they fall due if it is to remain in business.
- For this reason cash is often called the lifeblood of the company.
- Good working capital management is therefore necessary if the company is to survive and remain profitable.
- Hence there is a need to achieve a balance between the requirement to minimize the risk of insolvency and the requirement to maximize
- the return on assets which is essential to long-term success.
Back：Payback period
Next：Overtrading
